CPO Confidential

Siemens' CPO Barbara Kux ranked sixth in global businesswomen power list

Opening the latest issue of Fortune at the breakfast table this morning, I am interested to see that Barbara Kux, head of supply chain management at German industrial giant Siemens, is number six in the magazine's annual ranking of the most powerful international businesswomen (outside the US). Kux missed out last year because she was in the process of moving across from Philips, but prior to that, in her role as its CPO, she had climbed steadily up Fortune's league table from 26th in 2004 to 24th in 2005 to 21st in 2006 and then 19th in 2007.

But her sixth place in 2009 is a massive jump, taking her ahead of female business leaders such as Marina Berlusconi, daughter of Italian prime minister Silvio and chairman of his media company Fininvest (the global list is again led by Anglo American CEO Cynthia Carroll). So what explains Kux's meteoric rise in the eyes of this most revered of American publications? 

A quick look at its website gives a few clues: for starters, there's the fact that she's the first female Siemens board member in its 160-year history, not to mention the only woman on the board of any DAX 30 company in Germany. Then there's the $55 billion annual spend she's responsible for – more than double the budget she had at Philips. Lastly, Kux also holds the position of chief sustainability officer at a firm where a quarter of its sales in 2008 (some $27 billion) came from green technologies (at Philips, where she had a similar role, they accounted for 15 per cent in 2007).

All very impressive. But, as I found out when I attended Kux's presentation at a press conference in Berlin back in April, she has plenty of work to do if she's to propel Siemens into the premier league of best-practice procurement. Like many other big companies, its various divisions have traditionally operated a decentralised model, with the result that its supply base has sprawled (to 370,000 accounts with 100,000 different suppliers, according to Kux) and opportunities for cross-company leverage and efficiency have been missed. 

Kux has refused to declare a savings target in public, but if she can deliver the number agreed with her CEO Peter Loscher (reckoned by analysts to be around the €2 billion mark), then who knows, perhaps she'll break into the top 5 on next year's list.

A sobering experience for Nestlé's ousted CPO

Corporate culture is a subject that has fascinated me for many years. The way that values, attitudes and behaviours become ingrained in huge international companies over time – and are exhibited on a daily basis by employees from the most senior to the most junior levels – offers powerful insights into human nature. In some cases, this culture is embodied and driven by one person at the top of the organisation (a great example being Larry Ellison, boss of US software company Oracle). 

The benefits of a strong culture are many, but they include a shared sense of purpose, resilience in the face of adversity, consistent decision-making and actions, and a real commitment to people development. But there can also be downsides, not least an inward focus and a resistance to change – characteristics that in today's global and fast-moving markets can be a liability rather than an asset. For CPOs recruited into such an environment from the outside, rather than having been promoted from within after many years of loyal service, it can be a sobering experience.

A recent example of this appears to have taken place at the Swiss food giant Nestlé, a 143-year-old company that is renowned for its strong tradition of developing managers internally and keeping them for life. In 2006, upon the retirement for its long-serving procurement boss, the then CFO Paul Polman – a career Procter & Gamble man who is now the CEO of Unilever – opted to hire externally and chose Malcolm Harrison, who at the time was CPO of the brewer InBev in Belgium. 

Harrison set about upgrading the company's procurement capabilities and practices, creating the Nestlé Procurement University to equip hundreds of buyers with basic technical skills in areas such as strategic sourcing and negotiation; developing a more systematic approach to the purchasing of commodities such as milk and coffee beans; and building a strong senior leadership team for the global procurement function. 

But at the end of June, Harrison was shown the door. His efforts to instill a more co-ordinated approach to procurement appear to have gone against the grain of what remains a very decentralised group. Of course, disagreements about policy, objectives and style are commonplace at the senior executive level of big companies – and they invariably result in a swift departure (albeit one softened by a decent payoff). For without your boss's active sponsorship and support, driving change in the corporate world is virtually impossible, making it a risky environment in which to operate. In that sense, Harrison joins the thousands of executives every year who fall victim to a clash of personalities or cultures.

However, in this case I think the upward march of procurement has probably taken a knock too. The sort of things that Malcolm was trying to do at Nestlé were those that any good CPO at a major company lagging behind best practice ought to do. Not earth shattering or even fast, from a change point of view, but necessary for the long-term prosperity of the business. I therefore wish Malcolm the best of luck in finding a new role – whether as a CPO or in other areas of management. I'm sure that, since he hasn't even hit 50 yet, he's got a lot more to contribute to the development of this profession in the next few years.     

The softer, gentler side of Bo Andersson

Quite a bit has been written about CPO Bo Andersson's departure from General Motors in recent days, his possible appointment as CEO of Russian car maker GAZ and his replacement as group vice-president of global purchasing and supply chain by Bob Socia. Whatever the truth behind Bo's resignation (and I haven't spoken to him, so I can't say for sure), it's entirely understandable following Rick Wagoner's exit and the auto maker's entrance into Chapter 11 bankruptcy.

Although I never got to meet Bo in the flesh, in our conversations and e-mail exchanges over the past couple of years he impressed me as a real professional and a nice guy to boot. When I called to interview him for CPO Agenda back in the autumn/fall of 2007, he immediately wanted to get my opinion about how his Swedish compatriot Sven-Goran Eriksson was doing as the newly installed manager of Manchester City Football Club (answer: quite well at the time, although it went downhill from then on!). During our interview, he was at pains to stress that although GM's reputation for supplier relations had been terrible, he was determined to improve this and was trying to push through major cultural change, not only within a 4,000-person purchasing function but also within the company at large.

In this, he seemed to be making progress. The latest annual Working Relations Index study among US automotive suppliers published by my friend and contributor John Henke shows that GM's stock continues to rise. Its overall index score in 2009 was 183, up from a low of 114 in 2005. This is still well below the industry mean of 255, and almost half of leader Honda's rating (349), but to improve by 20 points between 2008 and 2009 at a time when GM was in meltdown must say something.

I was impressed enough by Bo to invite him to join CPO Agenda's editorial advisory board - an invitation he immediately accepted. From then on, although he didn't respond to all of my updates and requests to board members, when he did it was always personal (never via a PA or PR person), always polite and always with a hint of modesty. Back in February when I asked if he would take part in a webcast with some other CPOs, he replied: "Unfortunately, right now all my attention and focus needs to remain on GM and our business needs here. Therefore, I need to decline your kind invitation. I hope you understand..." Then, in our last communication, on 9 April, he sent a quick note from his trusty BlackBerry to say "I hope you are doing well. Things are busy here. We're trying to get the job done during these challenging times. Regards, Bo".

It sounds easy, doesn't it? But sadly there are quite a few (less impressive) CPOs out there who never take the time and trouble to be civil and communicate personally with journalists like me - even though they never know when they might need our help, our contacts or space in our publications! Despite his reputation among suppliers and the automotive media as a fearsome operator, I experienced the softer, gentler side that he said he was trying to inject at least some of into GM's stodgy culture. So, I wish Bo well in his new role and hope that while he plays his part in revitalising the global auto industry he continues to be an advocate for more collaborative and trusting buyer-supplier relations. 

Wanted: more CPOs who can cut it around the boardroom table

In 10 years as an editor covering the procurement world, I've attended my fair share of conferences and sat through hundreds of practitioner presentations. Many of these were basic and/or superficial, some downright dull, while others were simply unfathomable. But when listening to any CPO of a major company, the question in my mind was always this: "Can I imagine this guy (or this woman) sitting around a boardroom table engaging in an intelligent business conversation - not just a procurement one - with their CEO, CFO or other C-level executive AND walking out the door with their reputation enhanced?"

Sadly, in the majority of cases, well before the individual sat down again my answer was a resounding "No"! Perhaps it's unfair to judge people on the basis of a one-off performance like this, but then again how many chances do you get to impress a CEO these days? The problem was not simply a lack of charisma or leadership flair (though, by god, those things are in short supply in the upper echelons of the procurement community) but the feeling that they really weren't that tuned in (read "aligned") to the business agenda. To my mind, if a presenter can't explain clearly and simply at the outset why their internal colleagues give a fig about the project, initiative or programme they are about to describe, it's probably because they don't!

None of this would matter, of course, if procurement heads were happy just to do the stuff that procurement has always done - find suppliers, squeeze their prices, make them sign punitive contracts, and then shuffle purchase orders until it's time for the next deal. But that's not the case - most really believe they should be around that boardroom table on the basis that procurement's really, really important! Well, sorry, but that isn't enough - I recall one CEO telling me matter of factly that she didn't want her procurement director in the room if he was only capable of talking about procurement!

The upside of this state of affairs is that when I have been fortunate to hear a really smart and business-focused CPO give a presentation, I've not only woken up but also felt a kind of warm feeling inside. It's that sense of relief that comes from knowing that the next time somebody asks "What do you do?" at a social event, you can actually sound enthusiastic and proud, and perhaps even convince them that procurement is really quite interesting after all. 

(Note: It doesn't always work - cue this conversation I once had with one of London's famous black cab drivers on my way home from an overseas conference:

Cabbie: What do you do then, guv'nor?

Me: I'm a business journalist.

Cabbie: What do you write about?

Me: It's called procurement.

Cabbie: What's that then?

Me: Well, my readers buy all the things that go into this cab you're driving - the engine, the steel, the seats, the electronics, and so on.

Cabbie: Christ, that sounds boring!)

On Tuesday at the Ariba Live event in London, I listened to a presentation from Jon Kirby, CPO of AstraZeneca, the British-Swedish pharmaceutical company. I first met Jon a couple of years ago when he held the same job at Barclays Bank - in fact, he took part in a roundtable on world-class procurement I chaired that, by coincidence, also included his predecessor at AZ, John Taylor (you can read the write-up here). It wasn't so much that he was pushing the boundaries, in terms of the function's reach and vision (although he did say that it was now embarking on a few supplier development programmes); it was more his dynamism and clear focus on meeting the changing business requirements of Big Pharma (ie, more cost orientated).

While contract renegotiation and demand management were two levers that could, and were, being pulled to reduce costs, Jon stressed that "most of our future savings" would come from what he termed "strategic change" - new suppliers and processes, outsourcing and offshoring, hedging, and so on. High-impact results in these areas could only be achieved if procurement and the rest of the business worked together hand in hand. "It's not a procurement initiative, it's a business initiative," he said.

This, I'll admit, didn't excite me in the way that collaborative supplier relationship management and the innovation agenda does (see my previous post), but at least I could picture Jon around that boardroom table, holding his own and contributing to the wider discussion. That's not something, unfortunately, I can say about too many CPOs.

Kux plays the role of leading lady (and CPO)

It isn’t every day that the CPO of a major company sits alongside its CEO and CFO at a press conference to announce its latest financial results. But that’s exactly what happened at Siemens in Berlin this morning. Barbara Kux – one of the top 50 most powerful women in world business, according to Fortune magazine – did a double act with her CEO and boss Peter Loscher in front of the assembled media, giving a brief overview of the procurement strategy she has been pursuing since the start of the year. (For full details, see my story and exclusive interview comments on the CPO Agenda website.)

Loscher, as you might expect, had the starring role and did most of the talking (entirely in German), but fellow managing board member Kux was very much the leading lady. Indeed, CFO Joe Kaeser was reduced to the role of supporting actor, speaking only briefly a couple of times later in the hour-long event to answer journalists’ questions. Now there’s something else you don’t see every day – especially when the main purpose was to present results and give a half-year update on the company’s business performance.

Kux, like Loscher, gave a carefully scripted presentation and seemed relaxed and confident performing in front of the cameras. But she was uber careful not to give much away in terms of specific details (like how much her team is being tasked to deliver in cost savings to help prop up Siemens’ declining profits – although analysts reckon it’s probably in the order of €2 billion, or 5 per cent of total purchasing spend). This caution carried through to our brief interview afterwards, when she glanced frequently at her press minder before giving me fairly bland answers to pretty specific questions.

Still, I can’t say I blame her. With procurement under the spotlight and in the media glare to this degree, an ill-advised comment could have a direct and negative effect on Siemens’ languishing share price. Kux is media shy at the best of times and I doubt very much she’ll be giving too many more interviews until she’s got concrete results to talk about. But it will be interesting to see if she again takes centre stage at the company’s next major press conference in the autumn.

J&J’s Ralf Garczorz shows admirable ambition

Regular readers of CPO Agenda and this blog will know that I passionately believe procurement’s future lies in delivering value above and beyond cost cutting. Areas such as supplier collaboration, innovation and sustainable development are where companies will derive more of their competitive advantage in the years ahead – and it is here, rather than the short-term, tactical stuff that we are seeing lots of right now, where procurement can make a significant strategic contribution.

Sadly, I hear all too few CPOs articulating such an ambition in public. So I take my hat off (or at least I would if I wore one) to Ralf Garczorz, CPO of Johnson & Johnson’s EMEA consumer division, who did exactly that at the ProcureCon Indirect conference in Amsterdam earlier today. A German based in Switzerland, Ralf isn’t one of the more flamboyant procurement leaders on the European scene. His presentational style is softer and more quietly spoken, but his message was immensely powerful and leading-edge nonetheless.

His vision for procurement at J&J in 2012 was largely about top-line and organisational improvement contributions – collaborating with other functions and business colleagues, building a strong centre of market insights and competitive intelligence, and developing high-potential talent in the procurement function that could quickly move into business leadership roles around what is a big, sprawling and decentralised company.

Ralf admitted that “it’s not an easy sell, because we are still seen as a cost-cutting function”. But he is determined to do more of these things, because he believes that “we are doing a better job for our company” that way. “Procurement can do so much more than the classic role of cost reduction,” he told his audience.

In the future, a company’s fortunes would be determined partly by the strength of its “competitive clusters” of suppliers and customers, he said. The recession would accelerate this trend, but procurement leaders had to have the passion to develop their functions and convince colleagues that it could make a “broader value contribution”. Despite the temptation, he urged his peers not to “fall back on short term only, cost reduction only” in the current economic climate.

Good stuff indeed. I hope to hear many more CPOs joining Ralf and showing similar aspirations. But, as I say, it’s still all too rare in my experience.

Hedging strategy, Korean style

How about this for a piece of country-wide hedging strategy? Hyundai Heavy Industries is leasing 50,000 hectares of farmland in eastern Russia to grow maize and soyabeans, according to the FT. Its report says the move is designed "to help Korean livestock farms by freeing them up from sudden price changes and supply shortages".

Hyundai is paying $15.5 million for the rights, apparently, in a bid to boost the country's food security and insure itself against future rises in commodity prices. The move comes after Daewoo's efforts to lease 1.3 million hectares of land in Madagascar fell foul of the recent coup there.

I'm tempted to say that the lesson of this is that a country cannot live on (silicon) chips alone. But that would just be far too corny!

When supply base rationalisation turns sour

A news report in today's Financial Times claims that cutting the number of smaller suppliers is the "latest tactic" among German industrial companies in response to the recession. As anyone who knows anything about procurement will tell you, this is in fact a trend that has been going on for some years. What's surprising is that even some well-regarded, successful firms have yet to make much headway in culling their "tail" of less critical suppliers.

The story repeats Siemens' recent announcement that it is preparing to cut up to 74,000 suppliers this year - albeit from its massive supply base of 370,000. This might have grabbed headlines, including in the FT, but I am expecting much more from Barbara Kux, Siemens' procurement and supply chain chief, who has been reviewing the company's strategy since joining from Philips last November. She is likely to reveal more details of this at the company's second quarter results press conference in Berlin on 29 April – watch this space for an update. (Also, see Bloomberg's profile of Kux and its predictions.) 

While using a smaller number of suppliers in some categories makes sense for reasons of leverage and efficiency, of course, some companies - not least in the automotive and aerospace industries - have found that taking this approach to an extreme has cost them dearly in recent months. Relying on single-sourcing, even for a relatively simple component, has been shown to be a highly risky strategy, particularly when suppliers are facing financial turmoil. Although industry consolidation has driven some of this risk increase, procurement must bear some of the responsibility as a result of overly zealous rationalisation of supply bases in the good times. 

Tough times for Toyota and its suppliers

Just read an interesting story in today's Financial Times, quoting the head of Toyota's US operations, Jim Lentz, saying: "The biggest challenge we face is really on the supplier side of the business."

He has "real concerns" about the survival of up to 30 suppliers, according to the FT. And from what I can gather it's a similar picture here in Europe.  

One problem for Toyota, as a company executive explained to me several months ago, is that whereas in Japan it has a very tight-knit supply base, with lots of cross-shareholdings, in the US and Europe it is far more dependent on Western suppliers outside of its control. 

At the same time, these overseas operations still have a lot of single-source arrangements, which means that the failure of even a minor component maker can shut down production lines. To compound the problem, it's not in the company's "DNA" to hold safety stocks – Toyota being the inventor and chief proponent of lean/just-in-time production.

From what I know, Toyota's purchasing guys have been working their socks off trying to manage this situation. And let's face it, the company still puts most others to shame when it comes to supplier development and long-term relationship building. But it will be very interesting to see whether the painful experience of this recession causes it to rethink any of its much heralded supply chain philosophy and practices.